In the initial phase of the digital journey, the target was the urban market, but later HDFC Bank decided to also tackle the semi-urban and rural pockets. Behind all this, the objective was to expand the business and break the myth of the so-called base effect, which slows down the growth rate of a large bank.
The bank employees took time to understand what Aditya Puri wanted. When the boss told them to reduce the cost/income ratio by 5 percentage points, the team came back with an estimate of 0.25%. But Aditya wasn’t looking for marginal change – they didn’t really get the point. He wanted nothing less than a digital transformation.
For example, if he said a loan in 10 seconds, it meant that the whole process was completed within that time: customer request, approval (with the help of a built-in credit) and the money credited to the account. . It took six months after Aditya first met on his return from Silicon Valley to make fundamental changes in the way HDFC Bank operated.
It was no easy task as there was complacency after creating what employees believed to be the best bank in India – it had the least bad assets and enjoyed steady growth that comfortably outpaced all its rivals . Aditya kept saying that everything they had created was history and now they had to reinvent the bank and themselves. Targets were set daily with three objectives: customer convenience, competitive pricing and reduced costs.
The exercise was an intense effort, with most senior staff working continuously between September 2014 and February 2015. Those six months marked the start of HDFC Bank 2.0. Aditya was ready to take responsibility for anything that went wrong, but anyone who failed to answer the call of duty eventually sought other opportunities, despite the bank never explicitly asking him to do so….
The 10 second push
Arvind Kapil was the first to offer this innovative product. He introduced the concept of a 10-second loan for the bank’s existing customers which was launched in April 2015. Existing customers (about 30 million) were given a credit score based on transactions, payment records and internal and external credit history. The credit team said about a third of customers could qualify for pre-approved loans of up to Rs 1.5 million.
For a smooth experience, they have integrated front-end and back-end. Selected clients would have the option to fill in a few details, get an OTP and the money (loan) would be transferred to their accounts within 10 seconds – the fastest loan approval and disbursement in the world.
Let’s hear the story of Arvind, Country Head, Unsecured, Real Estate, Mortgage and Working Capital Lending.
According to him, there were constant debates within the bank about how to get the product to consumers in the fastest and most convenient way – how to empower them through DIY.
HDFC Bank 2.0 coverage | Photo: Amazon
Arvind recalls a meeting in early January 2015 with a client in Chennai who ran a large food supply chain. The client was convinced of the bank’s products but was reluctant to apply for a loan due to the large amount of documentation and multiple visits to the relevant bank executives. He asked Arvind if he could get a loan from home without having to call the bank.
This was the story of most clients – happy with the product offerings but not comfortable with the paperwork and the involvement of multiple executives in the process from loan approval to disbursement. This was the inspiration for the 10 Second Personal Loan product.
A senior IT executive in Delhi who had been doing business with HDFC Bank for a long time once asked Arvind why a client applying for a loan had to provide so many documents – payslips, PAN, proof of address, etc. “If you already have access to my salary account and all the other cash flow statements, why do I have to prove it with paperwork?”
Uncharted Territory
This got the ball rolling. Arvind began to connect the dots and work towards a seamless product for the client and the bank. It was uncharted territory. Initially, the process would be limited to 30 minutes. They were following a bottom-up approach and started thinking about ways to address the challenges in loan approval as well as disbursement.
The bank used to give income-based loans that required tax returns. How would they do that online? Another important aspect was risk management. This meant that they had to be very careful but, at the same time, come up with an innovative product. Since the customer would not provide any information, he had to extract it from the data he already had, such as bank statements, credit/debit card transactions, information about funds paid into the account, etc. Of course, this could only be possible if HDFC Bank was the primary bank for the client….
In the initial phase, it was only intended for certain salary account holders where the risk team had performed various algorithmic and analytical tests. The product was launched on the bank’s net banking site on the evening of April 30, 2015.
The first loan
The first loan was granted at 4:18 a.m. on May 1, 2015 to a 25-year-old process worker at a BPO in Jaipur who worked from 10 p.m. to 5 a.m. “Talking to him, we found out that because his working day never coincided with bank opening hours, he therefore found it very difficult to apply for a personal loan. While checking his balance online, he found the offer, clicked hoping to see a form and was surprised to get money into his account almost instantly,” says Arvind.
On the first day, 215 customers took advantage of the online 10-second personal loan offer. Loans were usually 0.3 to 0.4 million rupees (capped at 1.5 million rupees). The team recorded a loan disbursement of nearly Rs 3.5 billion in the first month without any publicity.
The initial reaction from customers has been encouraging. During the early days of the product launch, the Arvind team frequently called customers to understand their experience and whether the product met requirements and expectations. As the bank grew in confidence, it continued to customize the product offering and ticket size, keeping its relationships in mind.
How it works?
How does the interface work? A customer connects to the bank’s net banking website. If the customer is eligible, a loan option is available at the top. The customer fills in some information (some fields are pre-filled), authenticates it using two levels of verification and the amount is credited to the customer’s account within 10 seconds.
Arvind claims that actually the amount is sent to the account in 5-6 seconds. The USP is that for a customer, a loan check is available and cashable 365 days a year, 24 hours a day. As of November 2018, 34% of the bank’s personal loans were booked outside of banking hours.
How’s it going so fast? The bank’s credit team considers each bank customer as a potential loan customer and, after analyzing the data (which is continuously updated), assigns a credit score based on an algorithm. All of these customers are “pre-approved” for a specific loan amount at a certain rate. The bank then informs the customer of the availability of this online loan. Once the client confirms the loan requirement with one click, it is disbursed immediately.
For the client, the whole process is online but there is a lot of upstream work where the credit and risk teams are involved.
The product is the culmination of the bank’s underwriting and risk understanding prowess, underpinned by a mass of customer data stored in a data warehouse explaining transactions and payment patterns and credit behavior. There is no paperwork; documentation is done online via OTP. …
The bank’s personal lending segment sees about Rs 60 billion in disbursements each month, 10-second lending accounts for a third of that. Clients are mostly between 30 and 40 years old. The delinquency rate is comparable to physically disbursed loans.
The bank’s paranoia for risk has grown as it goes digital. For risk management, she created a new credit risk underwriting framework called P27, or the power of 27, as it’s affectionately known inside the bank. It incorporates the “ability to pay” income score and cascades it with the credit bureau score as well as a behavioral score of spending habits or past repayments, then blends it with the social score, capturing consumption patterns an individual’s Internet.
The campaign, Kil-Bil (Kill the Bad, Build the Good—inspired by the American martial arts film written and directed by Quentin Tarantino), is another interesting initiative introduced to encourage frontline teams to ideas for improving credit underwriting and portfolio quality.
(Excerpt with permission)
